Update Coach (COH)

I’m filing this update from the beach. I’m on vacation the week of March 29 April 2. Unless the sun stops shining here in the Bahamas (or the kids decide to hire themselves out on a fishing boat), I don’t anticipate filing more than once a day for this week. JubakPicks.com will go back to its normal schedule on Monday April 5.

I think Coach has done a great job of navigating through the economic slowdown by shifting its price points and managing the mix between its full-price and out let stores so that sales stayed strong but margins didn’t take too much of a beating.

Now Coach gets to reap some of the reward for handling the downturn so well.

With growth picking up in the U.S. economy, Coach’s mix will shift again but this time back in favor of its full-price stores. In those stores customers will find lines that fit these recovering but still not flush times. Coach has added products to keep 50% of its handbags at $300 or less. The shift in favor of full-price stores should drive gross margins higher: Standard & Poor’s is looking for gross margins to improve by about 0.3 percentage points in the fiscal 2010 year that ends in June.

The long-term future for the company looks solid too. Coach finished 2009 with about $1 billion in cash. That should be more than enough to fund the company’s planned expansion in China where the company now owns just 4% of the luxury goods market.

As of March 29, 2010 I’m raising my target price to $44 a share by October 2010.